The Impairment Hits Keep Coming

Latest companies to report lower goodwill on the balance sheet are Novelis, Kinross, Barrick, A.M. Castle, Chiquita, and Tim Horton's.
Stephen TaubFebruary 23, 2009

Markdowns in equity values are forcing another round of sizable impairment charges at companies. While they are accounting events, and don’t involve a reduction in cash, the hit to company balance sheets sometimes is severe.

Novelis, the Canadian subsidiary of Indian aluminium major Hindalco Industries Ltd., took the biggest recent impairment: noncash, pretax charges of $1.5 billion for goodwill impairment, consisting of a $1.3-billion reduction in the value of goodwill and a $160 million writedown of Novellis’ investment in Aluminium Norf GmbH (Alunorf). The company said the charges reflect changes in certain assumptions used to calculate asset impairments under U.S. GAAP.

The changes include the increased market cost of capital, which is due primarily to the significant deterioration in the capital markets during the third fiscal quarter, the company elaborated. “The market cost of debt required in these calculations is significantly higher than the interest rates on Novelis’ existing debt,” it said. Novelis also cited a related decline in market capitalization for both its parent company, Hindalco Ltd., and other industry participants, along with the impact of the global recession on near-term operating forecasts.

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Elsewhere, Canadian miner Kinross Gold reported a $994 million impairment charge, primarily related to its 2007 purchase of Bema Gold. Also, Barrick Gold on Friday reported noncash impairment charges of $773 million in the fourth quarter, mainly related to goodwill impairment at Kanowna, North Mara, Osborne, and Barrick Energy.

In the foods arena, Chiquita Brands International posted a fourth-quarter noncash goodwill impairment charge of $374.5 million related to Fresh Express, a producer and distributor of fresh, ready-to-eat packaged salads. And Tim Horton’s reported a $13.7-million impairment charge related to the closure of underperforming company-operated restaurants in southern New England between the end of 2008 and early 2009.

Also on Friday, apecialty metal and plastic parts distributor A.M. Castle & Co. said  that it will record a noncash goodwill impairment charge of $55 million to $65 million for the fourth quarter of 2008 related to its Metals Segment.